Brazil Real Rises on Intervention as Eletrobras Leads Stock Gain

  • Central bank offered as much as $500 million in credit lines
  • Utility's shares gain on outlook for higher electricity rates

Brazil’s real rose after the central bank said it would intervene in the currency market, offsetting a decision by lawmakers to delay voting on a measure to help reduce the fiscal deficit.

The currency advanced 0.5 percent to 3.78 per dollar Thursday in Sao Paulo, after earlier declining as much as 0.4 percent. Centrais Eletricas Brasileiras SA led gains on the Ibovespa stock gauge, rallying the most since May, after a regulatory decision indicated it might be allowed to charge higher rates.

Brazil’s central bank offered as much as $500 million in two auctions of foreign-exchange credit lines on Thursday, the second time this week it’s taken such a move after resuming occasional sales in September. Meanwhile, Brazilian lawmakers decided to postpone until next week a vote on a government proposal to boost revenue by providing incentives for citizens to repatriate assets, fueling pessimism that the government will be able to push through measures to shore up the budget deficit.

"The political scenario in Brazil remains very weak, and the central bank acting gives some support," said Ricardo Gomes da Silva, a currency trader at Correparti Corretora de Cambio in Curitiba, Brazil. "Still, there is a tendency for the real to weaken further from this current level."

The currency’s 30 percent drop this year has helped make the Ibovespa one of the world’s worst-performing stock gauges in dollar terms. The index rose 0.7 percent to 48,046.76 on Thursday after falling as much as 0.6 percent.

Mining company Vale SA slumped as prices for iron ore dropped to a four-month low. Phone carrier Telefonica Brasil SA fell the most on the Ibovespa after reporting third-quarter earnings that missed analysts’ estimates.

Food processor BRF SA rallied after its valuation dropped to a three-year low, as investors hunted for companies best positioned to withstand the country’s economic slump. The Ibovespa was trading at 11.1 times estimated earnings, 31 percent below the valuation of the MSCI World Index.

Smiles SA, the frequent-flier unit of air carrier Gol Linhas Aereas Inteligentes SA, climbed after earnings exceeded analysts’ estimates. Eletrobras added 8.2 percent to the highest since July.

Brazil’s central bank resumed new sales of swap contracts and foreign-exchange credit lines aiming to support the currency after a similar program was in place from August 2013 to March 2015 amid efforts to crack down on inflation.

President Dilma Rousseff and Finance Minister Joaquim Levy are struggling to find support in Congress to approve measures aimed at strengthening government finances and averting further credit rating cuts after Standard & Poor’s downgraded Brazil’s debt to junk in September.

Emerging-market currencies declined Thursday after Federal Reserve Chair Janet Yellen signaled a possible interest-rate increase next month.

“At this point, I see the U.S. economy as performing well,” Yellen said on Wednesday in testimony before the House Financial Services Committee in Washington. If economic data continue to point to growth and firmer prices, a December rate hike would be a “live possibility,” she said.

Brazil’s budget gap excluding interest payments will probably be about 120 billion reais for this year, Folha de S.Paulo newspaper said in a report Thursday. That’s more than twice the 51.8 billion real-deficit the government forecast last month.

Swap rates on the contract maturing in January 2017, a gauge of expectations for Brazil’s interest-rate moves, rose 0.02 percentage point to 15.37 percent.

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